Key Points
A US military strike on Iran could trigger a sharp spike in oil prices if Iran renders the Strait of Hormuz unsuitable for commercial shipping. In 2025, over 14 million barrels of oil per day transit the strait, accounting for approximately one-third of global seaborne oil exports.
According to Dan Yergin of S&P Global, oil markets are bracing for a potential US-Iran military confrontation. In a worst-case scenario of full-scale war, oil prices could surge dramatically, potentially triggering an economic recession. As the US significantly builds up military forces in the Middle East, President Trump stated on Thursday that he would decide within the next 10 days whether to launch a strike against Iran. "The Iran situation has kept this market extremely nervous," John Kilduff, founder of Again Capital, commented. "Iran is certainly going to cause some trouble, and that's the risk the market is pricing in." President Trump warned Iran that any strike would be "far more severe" than the limited airstrike on its nuclear facilities in June of last year. However, he also left open the possibility of negotiating a deal concerning Iran's nuclear program.
Pricing the Risk
Oil prices have risen nearly 6% this week as traders factor the increased risk of military action into prices. The market's primary concern is that a conflict could disrupt oil shipments through the Strait of Hormuz. This strait is a critical chokepoint for global oil trade. Data from consultancy Kpler shows that in 2025, an average of over 14 million barrels of oil and condensate per day passed through this narrow waterway, representing one-third of global seaborne oil exports. Kpler noted that approximately three-quarters of the oil shipped through the strait is destined for China, India, Japan, and South Korea. On Tuesday, Iran's Revolutionary Guard partially and temporarily closed the strait for several hours to conduct military exercises. Semi-official Tasnim News Agency quoted Iranian Navy Rear Admiral Alireza Tangsiri stating that the Revolutionary Guard is prepared to blockade the strait if ordered by Iran's leadership. "Iran could disrupt the Strait of Hormuz for much longer than many market participants anticipate," said Bob McNally, founder of Rapidan Energy Group.
Worst-Case Scenario
McNally suggested the US could face a situation similar to the previous 52-day airstrike campaign against Yemen's Houthis, who disrupted Red Sea shipping with missile attacks, but potentially worse. "Iran's weaponry is far more sophisticated than the Houthis', and its coastline is more conducive to military operations," the energy strategist stated. Iran also possesses substantial stockpiles of naval mines and short-range missiles, sufficient to render the strait unsuitable for commercial shipping. "In that environment, Lloyd's of London would not permit or insure tankers to transit the Strait of Hormuz," McNally said, referring to the London insurers. McNally indicated that global energy markets could not balance supply and demand without the oil shipped through the strait. A prolonged closure could push oil prices above $100 per barrel, stifle demand, and potentially trigger a recession. He also suggested Iran might calculate that crippling the US economy ahead of the November midterm elections could trigger President Trump's greatest fear. A study released earlier this month by energy consultancy Rystad Energy showed that a broader US-Iran conflict could cause oil prices to rise rapidly by $10 to $15 per barrel.
Limited Strike Options
However, McNally also noted that President Trump has various options, including imposing a blockade or other actions, that would not necessitate a full-scale regional war. In a report on Thursday, Natasha Kaneva, Head of Global Commodities Strategy at JPMorgan, stated that any US military action would likely involve "surgical strikes aimed at avoiding Iran's oil production and export infrastructure." She added that any post-strike increase in crude prices would "ultimately fade, as global fundamentals remain relatively weak." Speaking to CNBC, Daan Struyven, Head of Oil Research at Goldman Sachs, also stated that, at least in their base case, the firm does not see a risk of large-scale, persistent supply disruptions. However, he noted that if a conflict led to a reduction of 1 million barrels per day in Iranian oil exports sustained for a year, crude prices would rise by $8 per barrel, forcing the market to reassess the risks of further escalation. Meanwhile, the Trump administration appears unconcerned about the risk of Middle East supply disruptions. "Global oil supplies are currently very ample," US Energy Secretary Chris Wright stated in a February 6th interview with CNBC, giving the president "more confidence to take geopolitical action without worrying about a wild spike in oil prices."
Comments